The demand for creation of smaller states in a country with relatively greater degree of heterogeneity of the population in terms of tastes, preferences and income over space and other geographical diversity like climate has the backing of compelling advantages of spatial and fiscal decentralization which would results in improved resource allocation in the public sector. Smaller states ensure that the decision- making process involves greater participation of the people, civil society and delivers flexible, immediate and effective actions under greater accountability and good governance. They are more efficient in providing public services and infrastructure evenly over locations, as their size is small and thus have low levels of regional disparity in terms of development as compared to larger states. Their greater ability to establish partnerships with private sectors, mobilize local skills, develop local transport, health, energy, and so on could be significant for overall growth and development of a particularcountry.However, the demand for smaller states including Koshala state in India have risen not on the grounds of the perceived economic benefits of smaller size but mostly because of the prolonged nderdevelopment and backwardness that these regions have faced. In the case of Orissa the process of economic growth has been regionally lopsided during the last fifty-years. While the coastal region has benefited mostly from the economic policies pursued by the sate, the Koshala region remains largely neglected, marginalized, and deprived. The regional imbalances has been such an extent that the news of starvation death, child-selling for rice, large-scale illiteracy, malnutrition, distressed out- migration etc. have came to be the characteristics of Koshala region. The feelings of Koshali people that they remain neglected even though they had contributed a lot in constructing modern Orissa state has been the single most important factor in voicing their demand for an independent state of Koshala. The fact that the Koshala region contributes significant chunk of resources for the Orissa government in the form of sales and excise tax, land revenues, mining, kendu leafs, timber, bamboo, fire wood and other forest products but get least attention in the public expenditure to address the basic necessities of human development such as education, health, access to safe drinking water, roads, etc. has embolden the recent struggle for Koshala state.